Despite initial hopes for a swift U.S.-Iran agreement to reopen the Strait of Hormuz, the expected breakthrough has failed to materialize, capping oil price gains on Monday. Jefferies economist Modupe Adegbembo warned that if the current standoff extends into next week, market dynamics will no longer be so "benign." A prolonged blockade could be further exacerbated by a rebound in Chinese crude imports and Houthi attacks on Saudi infrastructure, creating upward pressure on oil prices. On June 21, 2026, multiple commercial cargo ships and crude oil tankers were anchored in the Gulf of Oman, preparing to transit the critical Strait of Hormuz. Shipping in this vital global trade artery was severely disrupted following an escalation in U.S.-Iran geopolitical tensions in early February. A diplomatic memorandum of understanding was reached in mid-June... Even as the prospect of a near-term reopening of the Strait of Hormuz fades, oil prices remain below recent highs. Analysts warn this divergence is unsustainable.
The U.S. had previously signaled a potential deal with Iran to reopen this maritime chokepoint, which led the international benchmark Brent crude futures to fall over 7% last week. However, the agreement has been slow to materialize, and the prospect of a resolution deteriorated over the weekend. Iran has taken a tough stance, insisting that the U.S. must meet a series of preconditions before it agrees to reopen the strait. U.S. President Donald Trump signaled a strategic shift, telling Axios in a Sunday interview that the administration is "downplaying the situation," suggesting a reliance on continued economic pressure on Iran rather than immediate new military action. On Tuesday morning, Brent crude was trading near $88 per barrel, a recovery from around $83 at the end of last week, but still well below the highs of over $100 per barrel last month and above $110 in May.
Why Analysts See Further Upside for Oil
The market has gained some short-term confidence from ongoing negotiations between Iran and Oman over a temporary shipping lane through the strait, alongside expectations that the U.S. and Iran will not immediately engage in a new military conflict. Jefferies economist Modupe Adegbembo told the "European Morning Market" program on Monday that traders "believe that all parties will eventually come up with some kind of plan, even if it's just a temporary compromise." "This agreement may not be perfect, but it would at least ensure more crude oil and cargo can be transported through the Strait of Hormuz." She also warned that current market sentiment is highly time-sensitive. "If the situation remains unchanged, oil prices will find it difficult to maintain this current state of mild volatility once the standoff continues until the end of this week or into next week."
Kieran Tompkins, Senior Climate and Commodities Economist at Capital Economics, said the relatively low current oil prices reflect investors pricing in two scenarios simultaneously: a swift resumption of shipping and a long-term blockade of the Strait of Hormuz. Tompkins stated via email: If the stalemate persists, traders will be forced to raise their probability estimates for a prolonged closure of the strait. "This would likely lead to higher prices for near-term crude futures, especially when the market refocuses on the so-called 'tipping point' in the oil market."
Terminology Note: The crude oil market tipping point occurs when inventory buffers are depleted, preventing the market from absorbing supply shocks through released reserves. At that point, only a significant price increase can curb demand to rebalance the market.
"If the Strait of Hormuz remains blocked, OECD crude oil inventories will continue to deplete rapidly, potentially pushing the crude oil market to a tipping point by early in the fourth quarter. Based on historical patterns, oil prices would likely rise significantly, potentially reaching a range of $120–$140 per barrel."
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Another factor putting pressure on oil prices is the global market turmoil in July, which led investors to question whether massive AI investments by large technology companies will generate returns. Major cloud providers plan to invest hundreds of billions in data center hardware, and rating agencies like Moody's Corporation warn that record capital expenditures are squeezing free cash flow, forcing tech giants to increase debt.
Amrita Sen, founder and chief analyst at commodities consultancy Energy Aspects, noted that China's crude oil imports declined in May, but the country had been single-handedly supporting the global oil market. With China's crude imports rebounding in July and expected to rise further in August, she warned: "Oil prices cannot remain low indefinitely." Sen believes the market has recently priced in a resumption of shipping at the slightest hint of a potential deal, while ignoring persistent supply constraints on the spot side. This includes ongoing Houthi attacks on Saudi infrastructure, which is a key force for maintaining stability in the energy market. "From a fundamental perspective, the bullish case for crude oil is building."
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